Retirement may be the last thing on your mind as you navigate your career path but getting into the pension savings habit now will mean a more comfortable lifestyle in retirement at a fraction of the cost – if you start saving now!
We'll explain the benefits of saving early for retirement, what the options are and how to boost your pension pot with help from your employer and the government.
When do I receive the State Pension?
The State Pension age is the earliest age you can claim your State Pension. Your State Pension age depends on when you were born - you can find out what your age is using the Gov.uk website. Many experts expect it to be raised to 70 by 2050, in line with increased life expectancy. So for millenials to retire earlier, you'll have to rely on your own savings.
Why save for a pension?
Although you may have other important financial obligations like repaying student debt or saving for a deposit, paying into a pension now, even in your first job, will help you immensely.
Because what you pay now is likely to be worth much more in the future as the funds have decades ahead in which to grow.
Whatever you save into a company pension generates a contribution from your employer and the government via tax relief. The days of final salary pensions are gone. Most are now defined contribution schemes, into which you and your employer put in money that can be invested in different assets and funds.
Automatic Enrolment means that eligible workers are automatically added into a company pension scheme. Employer will also contribute money to this, in effect offering you extra money. You also get tax relief from the government on your pension contributions.
How much should I save?
Research by consumer group Which? shows that to enjoy a comfortable retirement you need to put away £131 a month in your 20's to generate a pension pot of £370,000 to receive an annual household income of £26,000 – but if you wait until 50 to start saving for retirement this rises to £633 a month. This needs to rise to keep pace with inflation too.
Other ways to save for retirement
Individual Savings Accounts (ISAs) are a tax-free wrapper for savings and investments. In 2020/21, you can invest up to £20,000 in a combination of ISAs.
Cash ISAs offer guaranteed rates of interest, so are good for cautious investors who don't want to risk losing money.
Stocks & Shares ISAs allow you to invest in a range of funds, bonds and shares in individual companies. This is higher risk than a Cash ISA as the value of the Stocks & Shares move in line with stock market fluctuations.
The Lifetime ISA helps younger investors save for a deposit for their first home, for retirement or both. You can invest up to £4,000 a year every year from age 18 until 50 and the government pays a 25% bonus on your contributions.
The Pensions Advisory Service offers further information about the state pension and retirement saving.
Saving for a comfortable retirement may seem a daunting task, but if you start early you'll have longer to benefit from interest and investment gains to help you reach your retirement savings goal easier.
Our articles cover a wide range of mainstream financial products and employee benefits. Terms and conditions may vary depending on your provider. Please ensure you check the specific terms and conditions of any financial products and employee benefits available to you from your employer.